ESG investing is ready for its close-up.
Hollywood has previously ventured into the cutthroat world of high finance in movies like Wall Street and The Big Short. HBO’s drama Industry continues this tradition, following a group of young, good-looking, London-based investment bankers at fictional global bank Pierpoint & Co. Warning: spoilers ahead for Season 3.
In the current season, Pierpoint is making massive bets on ESG — environmental, social, and governance — investing. Things go south fast, dragging down Pierpoint’s plans for a series of ESG-focused IPOs and jeopardizing the bank itself.
Like other TV shows such as Billions, Industry features swaggering type-A characters wearing Patagonia vests crowded around Bloomberg terminals. Unlike other shows, Industry’s showrunners actually worked in investment banks in London and bring a level of gritty realism to the show’s depiction of a trading floor.
With that pedigree, does Industry accurately portray the high-stakes world of global finance — and ESG investing specifically? Or does it perpetuate harmful misconceptions? The answer to both questions is “yes.” But like the relationships on the show, it’s complicated.
3 Things Industry Gets Right About ESG Investing
- ESG Offers Massive Investment Opportunities
Pierpoint’s outsized bet on sustainable companies reflects the significant opportunity set related to ESG investing. A recent Bloomberg report estimated that the market size of global ESG assets is likely to surpass $40 trillion by 2030. And according to survey results from global investment giant Capital Group, 90% of asset management professionals consider ESG factors in their investment processes, with the majority of respondents saying that ESG analysis can help them uncover unique opportunities.
Industry has astutely highlighted ESG investing as one of the major trends driving financial markets, even as the topic lends itself to inherent conflict among participants with vastly different worldviews. This brings us to the second aspect that Industry gets right about the current state of ESG investing.
- There’s Deep Skepticism about ESG from Some Corners
Despite the broad popularity of sustainable investing in recent years, ESG initiatives have suffered a backlash from primarily American right-wing politicians and investors who claim that ESG investing is a fad aimed at “woke” people who are OK with losing money so long as they appear virtuous. More than 160 laws have been proposed in 37 U.S. states seeking to ban the inclusion of ESG factors in investment funds that are part of state pension plans, though a majority of the initiatives have failed to pass.
This negative trend has had chilling effects on how asset managers discuss their commitment to sustainability in their processes, even if a vast majority of investors continue to integrate ESG criteria in their fundamental analysis.
In Industry, it’s not surprising that the most prominent skeptics of ESG are rich, patrician, white male aristocrats, including a viscount/right-wing tabloid owner and a billionaire hedge fund manager with proto-fascist tendencies. Again, Industry is on point in showing the forces that mock and resist ESG initiatives and who think that a “zero-sum-game” approach is the only way to make money. But as Industry points out, ESG also faces danger from inside its own ranks.
- “Greenwashing” is a Legitimate Threat to Climate Goals
Industry focuses on one very real threat facing ESG initiatives: unscrupulous companies and executives may be fudging the numbers on how much they’re actually committed to climate-friendly goals. The term “greenwashing” — encompassing the idea that some companies or industries present themselves as virtuous and environmentally friendly while hiding or suppressing their true environmental impact — is a threat to fighting climate change and gives critics ample ammunition to question the entire enterprise.
In Industry, green energy provider Lumi, run by the aptly named Henry Muck (played by Game of Thrones’ Kit Harrington), presents itself as a socially responsible company that uses renewable energy sources to provide cheaper energy to lower-income households. As it turns out, Lumi only sourced 5% of its energy from renewable sources and relies extensively on fossil fuels. After natural gas prices rise, the company is forced into bankruptcy. Not only was Lumi deceptive about its carbon footprint, but its failure literally left its vulnerable customers in the cold, necessitating a massive government bailout.
Again, the show taps into real-world controversies, as a Forbes article lists a graveyard of solar and other green energy companies that have cost U.S. taxpayers billions of dollars when they collapsed. Greenwashing — when it’s exposed — provides fodder for ESG critics and can derail honest efforts to fight climate change.
What Industry Gets Very Wrong About Sustainable Investing
While Industry does accurately capture some of the negative headwinds currently facing ESG investing, the show misses the overall point: companies that prioritize sustainability outperform their peers over time. Studies by consulting giant McKinsey and academic research from Harvard Business School show that sustainable companies have historically offered higher returns for investors than companies with poor ESG profiles.
The outperformance extends beyond individual companies. Morgan Stanley published a report showing that sustainable mutual funds strongly outperformed traditional mutual funds across all asset classes in 2023. For that year, sustainable equity mutual funds outperformed by 2.3%; sustainable fixed income mutual funds outperformed by 3.6%; and sustainable multi-asset, property, commodities, and alternative fund types (grouped together in the study) outperformed by 4.5%. And this wasn’t true for only one year — sustainable mutual funds outperformed traditional funds over a five-year period as well.
Those outperformance percentages are enormous, particularly when compounded over time. Simply put, investors do not need to give up returns by investing in companies that prioritize protecting the environment and act as good corporate citizens. In fact, investors who avoid these companies will likely lose out significantly.
While these studies likely won’t satisfy all critics, the numbers don’t lie. And McKinsey, Harvard Business School, and Morgan Stanley aren’t exactly left-wing ideologues. Industry shines a light on real issues, but for every Henry Muck, there are hundreds of companies actually prioritizing ESG initiatives — and rewarding their investors handsomely along the way.
Key Takeaways
- Industry is ultimately entertainment, but the show successfully dramatizes some of the largest issues facing not only the global investment community but the world as a whole. Regardless of what climate deniers say, the earth is undergoing massive changes due to human activities.
- Tackling these challenges will ultimately require significant behavioral changes by both companies and investors. While Industry may leave some viewers with a negative impression of sustainable investing, the fact that these issues are entering the mainstream is a hopeful start to a conversation that will shape the future of our planet.
- The fictional Pierpoint likely will not survive its risky bets on ESG, at least not as an independent entity. But in reality, the world needs to figure out solutions that can both make money and fight climate change. Luckily for investors, the performance of sustainable companies and funds has already shown that this combination is absolutely possible.
For more insights and guidance on navigating the evolving landscape of sustainable investing and other ESG issues, stay tuned to our blog for future updates and expert analyses.
And help us build a more sustainable and prosperous world through responsible investment practices by becoming a member of the Advance ESG community. It’s free to join and there are no future financial obligations. Together, we can make a difference in safeguarding our planet for future generations.
